Quarterly Review May 2013

Transcription

1 Construction Quarterly Review May 2013 John Grimes Partnership Limited v Gubbins [2013] A consulting engineer was held to be liable for losses flowing from the fall in the housing market. The consultant was engaged to design a road and obtain approval for a housing development for 15,000. The services were to be completed by March 2007 but the consultant failed to obtain approval by this date and the client engaged a third party engineer to do so. The client sought to recover 398,000 from the consultant, which represented the amount by which the market value of the development had fallen as a result of the consultant s delays. At first instance, the losses as a result of the decline in the housing market were held to be recoverable on the basis that the consultant knew at the time of entering the contract that the client might suffer such losses in the event of any delay. The consultant appealed on the basis that it had not accepted responsibility for this type of loss. The Court of Appeal held that the type of loss was reasonably foreseeable at the time of entering the contract and such losses will be recoverable unless there are circumstances demonstrating that the parties could not have contracted on the basis that the defendant was to bear the liability. Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] The Court of Appeal held that a clause imposing an obligation of good faith in respect of certain matters did not impose a general duty of good faith, thereby reversing a decision of the High Court. The Trust had imposed onerous service credits on Compass and made payment deductions as a result. Compass purported to terminate the contract, alleging that in administering the service credits and making payment deductions the Trust had breached a general duty of good faith, which constituted a material breach of the contract. Although the Trust had breached the terms of the contract in making the payment deductions, the Court of Appeal held that the duty of good faith under the contract only applied in the specific circumstances identified in the contract and was not a general duty. In any event, to breach such a duty a party must act dishonestly and there was no evidence that the Trust had done so. Accordingly Compass had not been entitled to terminate the contract. West and another v Ian Finlay & Associates (A Firm) [2013] The court adopted an extremely narrow interpretation of a net contribution clause in a contract between an architect and a consumer. The clause stated that the architect s liability will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by [the Client]. The architect had procured the appointment of the main contractor but the client was to procure the appointment of all other contractors and suppliers. After the main contractor became insolvent, the client pursued the architect for loss and damage for which the main contractor was also responsible for. The architect argued that the net contribution clause limited it liability to the amount that it is reasonable for them to pay. As there was some doubt as to the interpretation of the net contribution clause the court had regard to clause 7(2) of the Unfair Terms in Consumer Contracts Regulations, which requires the interpretation most favourable to the consumer to be adopted and held that the net contribution clause covered all suppliers and contractors appointed by the client except the main contractor and did not therefore limit the architect s liability.

2 Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd [2013] ScotCS CSOH 54, Outer House of the Court of Session A Scottish judgment was handed down by Lord Malcolm in April 2013 refusing to enforce the adjudicator s decision for a consulting engineer, Blyth & Blyth, to pay 3million to the employer, Whyte and Mackay, because it would be contrary to Article 1 of the European Convention on Human Rights (ECHR) and the rules of natural justice. The court accepted that it may be contrary to the very purpose and intention of adjudication to ensure cash flow and a speedy resolution by refusing to enforce the decision. However, it held that enforcement of the decision would be an unjustified interference with the peaceful enjoyment of possessions under Article 1 of the ECHR because a speedy procedure was not necessary and inappropriate for such a large and complex claim which would have placed excessive burden on the consulting engineer. The case involved Blyth & Blyth s design of defective foundations causing a high degree of subsidence, with consequential damage to the building and associated offices. On the adjudicator s findings, Whyte and Mackay would not have suffered loss or damage as a result of the breach because the main heads of loss (including additional piling work to prevent further subsidence) would not arise for more than 20 years i.e. Whyte and Mackay had suffered no loss as a result of Blyth & Blyth s alleged breach of contract. The court held that the adjudicator did not give adequate reasoning for his decision and failed to address part of Blyth & Blyth s defence that Whyte and Mackay had achieved substantial cost savings during the project by omitting piling, despite the known risk at the time. Note that the fact Blyth & Blyth had professional indemnity insurance did not mean there was no interference with its possessions under Article 1 as the law does not consider these arrangements in such situations. It remains to be seen how this judgment will be treated by the courts of England and Wales. Surveyors Scullion v Bank of Scotland t/a Colleys [2011] The Court of Appeal s decision in 2011 that valuers instructed on behalf of a lender do not owe a buyto-let investor a duty of care in respect of future rental yield remains good law. Mr Scullion (who had, surprisingly, been successful at first instance) appealed the decision in the Court of Appeal to the Supreme Court but abandoned that appeal on the day it was due to be heard in April The Court of Appeal had followed the leading case of Smith v Bush [1990] 1 A.C. 831 which held that a valuer s duty applies to residential property purchases but did not extend to transactions that were essentially commercial in nature. John Grimes Partnership Ltd v Gubbins [2013] This case is commented upon elsewhere in this briefing note in the context of a Consulting Engineer being held liable for the loss suffered by a developer following a fall in the property market. The decision, however, shows a significant divergence in the Court s approach between other professionals and valuers (and thus the principle established in SAAMCO) where valuers who advise lenders on the value of properties to be taken as security for a loan who negligently overvalue the property should not be liable for losses attributable solely to a fall in the property market, despite such losses being foreseeable in the sense of being not unlikely (the SAAMCO principle). Liability was excluded on the ground that it was outside the scope of the liability which the parties would reasonably have considered the valuer was undertaking. The Court showed no inclination to adopt the SAAMCO approach but instead confined it to within narrow bounds, as only arising in exceptional circumstances.

3 IFA s Clark & Clark v In Focus Asset Management & Tax Solutions Ltd [2012] The judgment in Clark & Clark v In Focus Asset Management & Tax Solutions Ltd [2012] was handed down by Mr Justice Cranston in the High Court on 19 December 2012 and has been the subject of a significant amount of commentary since then. This judgment is authority for the proposition that once a complainant has accepted a maximum FOS award, he can then pursue the respondent in Court for the balance of his loss. Clark & Clark complained to the FOS about financial advice they had received from In Focus. The FOS awarded Clark & Clark the full amount of their loss which was estimated to be in excess of the maximum award (which was 100,000 at the time, now 150,000). In Focus offered to pay to Clark & Clark the maximum award of 100,000 only, which they accepted, subject to a reservation of rights that they might pursue In Focus through the Court for the balance of their loss. In Focus paid 100,000 to Clark & Clark. Following receipt of 100,000 from In Focus, Clark & Clark issued proceedings at Court against In Focus, for the balance of their loss. In Focus applied for the claim to be struck out, relying upon the doctrine of merger (that the causes of action were merged, barring retrial) as per Andrews v SBJ Benefit Consultants Ltd [2010] (also a high Court decision). The application was granted by Judge Barratt QC and Clark & Clark s claim was struck out. Clark & Clark appealed. Among other points, they relied upon comments made by Rix LJ in the Court of Appeal decision in R (Heather Moor & Edgecomb Ltd) v FOS Ltd [2008] that the Ombudsman considers complaints, not causes of action, which was a factor in persuading the Court that the doctrine of merger did not apply. Cranston J also found in favour of Clark & Clark that the FOS statutory scheme does not preclude recovery of a sum over and about the FOS maximum limit, where complainants have accepted that payment. IFAs, Insurers and their intermediaries will be particularly concerned that the Court found that...for a complainant to use an award of 100,000 to finance the legal costs of bringing court proceedings for a greater amount is not inconsistent with the statutory aims. We understand this decision is being appealed and we are monitoring developments in this regard. Non-Disclosure in Consumer Insurance Contracts The Consumer Insurance (Disclosure Representations) Act 2012 came into force on 6 April 2013 which has eased the burden on consumers (private individuals, but it can extend to mixed private/commercial use) in respect of potential non-disclosures when entering into insurance contracts. Previously, consumers were under a duty to disclose all material facts to insurers. Under the new act, this has been replaced with a lesser duty to take reasonable care not to make a misrepresentation. This will require Insurers to specifically request the information they require, rather than relying on consumers to volunteer material information. The Financial Ombudsman Service ( FOS ) receives a number of complaints each year from consumers who have been denied cover due to alleged non-disclosures, regarding both long term and general insurance agreements. The changes implemented by this act should not come as a surprise, as they give statutory effect to the approach adopted by the FOS when dealing with complaints by consumers arising from alleged non-disclosure of material facts. Given the new statutory duty for consumers, it seems likely that application forms for consumer insurance products will ask more questions and require more detailed information of consumers. Insurers are also likely to apply a greater level of scrutiny to information provided by consumers in this regard when considering claims made. This should serve as a reminder to IFAs and intermediaries when advising consumers on entering into insurance contracts (particularly where Advisers are inputting information into application forms) i.e. life and critical illness insurance, close attention should be paid to the information given in response to questions posed by Insurers. IFAs should ensure that their clients are aware of their duties to Insurers and consider whether the information given in response to questions is clear and not misleading.

4 Accountants R. (on the application of Prudential Plc) v Special Commissioner of Income Tax [2013] Prudential PLC appealed to the Supreme Court against the decision of the Court of Appeal that legal advice given by accountants in respect of tax matters was not covered by legal advice privilege. HMRC had issued a notice requiring disclosure of documents relating to a tax avoidance scheme operated by Prudential PLC. Prudential refused to disclose any documents containing legal advice from their accountants, Price Waterhouse Coopers, on the ground that the content of those documents was covered by legal advice privilege and sought judicial review on the notices served by HMRC. By a 5-2 majority the Supreme Court upheld the findings of the lower courts that legal advice privilege did not apply to legal advice given by someone other than a member of the legal profession. Legal advice privilege therefore did not cover legal advice given by accountants in relation to a tax avoidance scheme. The Supreme Court was not willing to extend the boundaries of privilege and held that any such change would be a matter for Parliament to decide. Solicitors Clack v Wrigleys Solicitors LLP [2013] The Court has again had cause to consider the SAAMCO principle, that a wrong-doer is only liable for losses attributable to his wrong-doing and is not necessarily liable for all losses suffered by the Claimant. In the above case, the Claimant agreed to advance a sum of 600,000 to an acquaintance, B, for a period of 6 months. The loan was to be secured against the shares of a Company, in which B claimed to own 100% of shares issued. The Company was alleged to have been valued at 4 million. The Defendant solicitors were instructed to draft the loan and security documents and, during the course of the transaction, it was noted that the shares were not in B s name but, rather, half were in the name of a company owned by B and half were owned by a third party. It was agreed that B would transfer the shares into his name and that the transaction would proceed. The transaction completed without B demonstrating that the shares had been transferred into his name and, following B s default on the terms of the Loan, the Claimant commenced proceedings against the Defendant for failing to advise him of the risk of advancing the funds without verifying that the shares had been transferred to B. The Court held that the Defendant was negligent but found that they were retained to give advice on one aspect of the transaction and not to give advice on whether to proceed with the transaction. The Court therefore, applying Lord Hoffman s dicta in SAAMCO, sought to identify those losses attributable to the breach of duty. The Court noted that the Claimant would have suffered loss, even if he had the benefit of good security over the shares, as the shares were worthless (the Company being valued at considerably less than 4 million). The losses flowed from the financial risks of the transaction and not as a result of the Defendant s negligence. The Claimant was awarded nominal damages, being the amount of Directors fees which would have been paid to the Claimant had he been able to exercise control over the security. The SAAMCo principle continues to tax judicial minds and this case has divided commentator s opinions as to whether the Judge correctly applied the principle in this case. It is likely that issues arising from the SAAMCo principle will continue to be examined by the Court in the coming years. The case law, at present, is in favour of the professional defendant and their Insurers may wish to carefully select appropriate cases in developing the jurisprudence of this area.

5 AIB Group (UK) Plc v Mark Redler & Co [2013] The Court of Appeal recently considered what losses a Claimant lender was entitled to recover from a Defendant Solicitor in a claim for breach of trust. The Court of Appeal concluded that issues of causation and loss should be dealt with in a breach of trust claim in a similar manner to cases for breach of contract or negligence and a Claimant should only be entitled to recover loses flowing from any breach of duty and not as a result of, for example, a subsequent fall in the property market. The Defendant Solicitor had been instructed by the Claimant, a lender, in relation to a remortage transaction regarding the advance of 3.3 million. The Borrower s property was subject to a mortgage of 1.5 million, consisting of a loan of 1.2 million and a separate loan of approximately 300,000. The Claimant instructed the Defendant to use the advance to discharge the existing mortgage and obtain a first legal charge over the property. The Defendant paid the existing mortgagor 1.2 million and passed the rest to the Borrower, with the result that the loan for 300,000 was not repaid and the Claimant s mortgage was registered as a second charge. The Claimant sought recovey of all monies due from the borrower, on the basis that the release of funds prior to completion was a breach of trust. At first instance, it was held that the Defendant was in breach of trust but that in relation to the amount that the Defendant had failed to discharge from the existing mortgage. The Claimant s appeal was upheld in part, with the Court finding that the failure to take reasonable care entitled the Claimant to compensation arising from the lack of security. However, the Defendant had not warranted that the transaction would be loss free and the Claimant would have suffered losses even with the benefit of the intended security. The Court of Appeal considered whether the Defendant had released the funds in breach of S10.3 of the CML Handbook, which provided that the Defendant had no authority to release the moneys without the Claimant s direct authority, unless completion had occurred. Any release of the moneys following completion would not have been a breach of trust. The Court of Appeal concluded that the failure to obtain a correct redemption statement from the existing mortgagor and the failure to secure an unconditional commitment from the existing mortgagor (such as a solicitor s undertaking) to discharge the existing charge over the Property before releasing the funds was a breach of trust. However, the Court of Appeal agreed with the Court of first instance that the appropriate equitable remedy was for the Claimant to be compensated for the losses which, with the benefit of hindsight, can be said to flow from the breach of trust. The Court of Appeal therefore upheld the trial judge s finding that the damages should be limited to the 300,000 for which the Claimant had failed to obtain a first charge, rather than the 4,000,000 that the Claimant sought to recover as a result of the breach of trust.

6 Ireland - Insurance Hu V Duleek Formwork Limited & Anor [2013] The High Court held that an employee of a construction company, which was in liquidation had no cause of action against the company s insurers, even though he had obtained judgment against them and where the company s policy of insurance covered the claim. Here a carpenter sued his former employer for a personal injury he sustained while at work. The company had a valid employer s liability policy. The company notified its insurers of the claim in 2009 but after that the company went into liquidation. The insurer advised the liquidator that they would not indemnify the company unless the liquidator paid the excess on the policy which was 1,000. The excess was not paid by the liquidator and the insurers declined indemnity in respect of the claim. The Claimant obtained judgment against the company in liquidation but was unaware indemnity had been declined by insurers until March The Claimant then joined the insurer to the proceedings and an application was taken by insurers to have the claim against them struck out. The insurer argued the Claimant was not a party to the insurance contract and therefore had no right to sue the insurer under the insurance policy. The Claimant sought to rely on Section 62 of the Civil Liability Act However the Court held that Section 62 was limited to ring fencing monies payable by an insurance company to an insolvent company. The Court was very sympathetic to the Claimant but held that as the company had failed to comply with the condition under the policy that being payment of the excess, no monies were payable under the policy. May 2013 For more information please contact Stephen Milne on s.milne@beale-law.com or Marc Jones on m.jones@beale-law.com or call +44 (0)